Court Opinion

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Opinions of the United
2000 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

3-13-2000

FDIC v Deglau
Precedential or Non-Precedential:

Docket 98-1113

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Recommended Citation
"FDIC v Deglau" (2000). 2000 Decisions. Paper 54.
http://digitalcommons.law.villanova.edu/thirdcircuit_2000/54

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Filed March 13, 2000

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 98-1113

FEDERAL DEPOSIT INSURANCE CORPORATION,
exclusive manager of Resolution Trust Corporation,
as conservator for Horizon Financial, F.A.

v.

LOUIS DEGLAU AND MARGARET DEGLAU, h/w

Louis Deglau and Margaret Deglau,
       Appellants

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 90-3594)
District Judge: Honorable Robert F. Kelly, Jr.

ARGUED: November 5, 1999

BEFORE: BECKER, Chief Judge, and GREENBERG
and CUDAHY,* Circuit Judges

(Filed: March 13, 2000)

       Maurice A. Nernberg, Jr., Esquire
        (Argued)
       Marc Mellett, Esquire
       Maurice A. Nernberg & Associates
       301 Smithfield St.
       Pittsburgh, Pa 15222

       Attorneys for Appellants
_________________________________________________________________

* Honorable Richard D. Cudahy, United States Circuit Judge for the
Seventh Circuit sitting by designation.

       Michael K. Coran, Esquire (Argued)
       Klehr, Harrison, Harvey, Branzburg
        & Ellers L.L.P.
       260 S. Broad St.
       Philadelphia, PA 19102
       Attorney for Appellee

OPINION OF THE COURT
CUDAHY, Circuit Judge.

In 1983, Louis Deglau wanted to get into the business of
reclaiming coal from "gob piles." He presented his idea to
Gregor F. Meyer, an attorney and a member of the board of
Horizon Financial, F.A., (Horizon) a federally chartered
savings and loan association based in Bucks County,
Pennsylvania. Horizon expressed interest in becoming the
venture capital backer of the plan. Deglau formed Kelt, Inc.
to carry on the business, and issued one hundred shares of
stock to himself as sole shareholder. In March 1985, Kelt
obtained from Horizon a loan of $1.15 million tofinance
early operations. Kelt was to repay Horizon with interest,
and Horizon was to receive half of Kelt's profits. Deglau was
to get an annual salary of $80,000. Kelt's stock and all of
its assets were pledged as security for this loan. The Loan
Agreement was negotiated by Deglau's lawyer, Maurice
Nernberg, and Horizon's lawyer, board member Meyer. The
terms of the loan agreement are disputed, and will be
discussed below.

By November 1985, Kelt needed additional operating
capital. Horizon balked at a second loan to the corporation,
but eventually agreed to provide an additional $50,000 line
of credit if it was personally guaranteed by Deglau and his
wife. Louis agreed, but contends he conditioned the
arrangement on the bank's agreement to credit Kelt's
repayments first to his personal obligations. Having struck
a deal, Horizon officials gave Louis and Margaret Deglau
several documents to sign, some in blank. The note itself
was signed in blank. Louis contends he understood it
would be completed to reflect a $50,000 loan, but it was
eventually filled out to reflect a $200,000 loan. Deglau also

                               2

contends that "unbeknownst to [him]," the Guaranty
accompanying the note included a "spreader clause," which
purported to hold the Deglaus personally liable for all of
Kelt's obligations to the bank. R.249a.1 The Guaranty also
contained a warrant of attorney clause allowing the bank to
confess judgment against the Deglaus for their personal
loans and the loans to Kelt. See R.308a-310a. The
promissory notes for the November 1985 loan, and for a
July 1986 loan also included warrant of attorney clauses,
each typed out on separate sheets of paper, then attached
to the notes. See R.303a-04a; R.312a-14a.

Over the next year, Louis drew up to the $200,000
provided for in the second note, and borrowed an additional
$100,000. The bank eventually told him that under the
Guaranty, he was personally liable for the additional
$100,000; he objected, and he tells us he was assured
verbally that the Guaranty would apply only to the
$200,000 drawn against the note. At no time, Deglau
states, did bank officials say that the Guaranty made him
personally liable for the initial $1.15 million advance to
Kelt. By November 1986, Kelt had repaid Horizon $168,000.
However, by February 1987, Kelt needed another infusion
of cash. Horizon suggested increasing the personal line of
credit by $160,000. Louis agreed.

While struggling with the gob pile endeavor, Louis had
hatched another business idea -- precious metal
reclamation. He mentioned his idea to Horizon board
member Meyer. Meyer proposed that Louis pursue the idea
with Horizon's backing. He suggested that Louis sell Kelt
and use the proceeds to reduce his outstanding obligations
at Horizon. Louis contends that Meyer told him to conceal
from his attorney the negotiations to sell Kelt, and to allow
the Meyer & Flaherty firm to represent Louis and Kelt.
Louis obliged. Some time thereafter Louis sold Kelt to a
company known as G, K & G.

Deglau apparently missed payments to Horizon on the
outstanding loans over the next several years. At the same
time, Horizon was experiencing financial turmoil, and was
_________________________________________________________________

1. Throughout the opinion, citations to the Appellant's Appendix will be
indicated by R.[page].

                                3

eventually taken over by the Resolution Trust Corporation
(RTC) and later by the Federal Deposit Insurance
Corporation (FDIC).2 In 1990, the FDIC advised Deglau that
he was in default on the 1985 Kelt note for about $1.3
million; the 1986 personal note for about $320,000; the
1987 note for about $262,000; and a 1988 note for about
$32,000. Acting on this belief, and on the warrant of
attorney provision in the guaranty, the FDIC confessed
judgment against the Deglaus for $2,416,986.47 in the
United States District Court for the Eastern District of
Pennsylvania.

A familiarity with judgment by confession as undertaken
in Pennsylvania is essential to the decision of this case.

        Judgment by confession is a product of state law,
       having no analog in the federal rules. In Pennsylvania,
       the state's Rules of Civil Procedure prescribe the
       procedures and filing prerequisites for obtaining
_________________________________________________________________
2. On June 8, 1989, the Federal Savings and Loan Insurance
Corporation (FSLIC) was appointed as conservator of Horizon. Effective
August 9, 1989, the RTC succeeded the FSLIC as conservator until, as
noted, Horizon was closed and the RTC became receiver. As receiver, the
RTC succeeded to all of the rights, titles, powers and privileges of
Horizon. See Central W. Rental Co. v. Horizon Leasing, 967 F.2d 832, 833
n.1 (3d Cir. 1992). See also 12 U.S.C. S 1441a(b)(4)(A). Pursuant to that
statute, the FDIC is the exclusive manager for the RTC. Therefore the
FDIC was the appellee in this case. See Central W. Rental Co., 967 F.2d
at 833 n.1. See also 12 U.S.C. S 1441a (b)(1)(C). Subsequent to the
initiation of the suit, the FDIC assigned its interest in the judgment to
DFS, Inc., and DFS subsequently assigned its interest to the Cadle
Company. Federal Rule of Civil Procedure 25, which governs the
substitution of parties during the pendency of litigation, makes clear
that in the absence of a motion to substitute, the action may properly
continue by or against the transferor. See F ED. R. CIV. P. 25(c). The
Deglaus protest that the trial court did not have jurisdiction over the
case because the FDIC was not the "real party in interest." But Federal
Rule of Civil Procedure 17 requires that an action involve only the real
parties in interest, as determined by transfers prior to the initiation of
suit. See FED. R. CIV. P. 17(a). Because this transfer took placeafter the
FDIC brought suit, the Deglaus' proper vehicle for challenging the FDIC's
continuing involvement was a Rule 25 motion. Having failed to bring that
motion, the Deglaus have waived this issue. Thus, we will refer
throughout the opinion to the FDIC rather than to the Cadle Company.

                               4

       confessed judgments and, in effect, affirm the validity
       of contractual waivers of prejudgment procedures in
       Pennsylvania. Pennsylvania's rules of procedure also
       prescribe how a confessed judgment may be

       successfully attacked. By motion to open the judgment,
       a defendant may assert defenses going to the merits of
       the alleged default. If the defendant presents evidence
       in support of a meritorious defense sufficient to create
       a triable issue of fact, the judgment will be opened.
       Execution on the judgment will then be stayed until
       the court can resolve the disputed claims, but the
       judgment remains in effect as a judicial lien.

        A motion to strike, on the other hand, tests the
       sufficiency of the record upon which the confessed
       judgment was entered. The court takes all the
       plaintiff 's allegations as true and will grant the motion
       only to remedy a "fatal defect or irregularity appear[ing]
       on the face of the record or judgment."

       Antipas v. 2102, Inc., No. CIV.A. 98-1145, 1998 WL
       306537, at *1-*2 (E.D. Pa. June 9, 1998).

I) Disposition Below
After the FDIC confessed judgment, the Deglaus filed in
the Eastern District of Pennsylvania a motion to open or
strike the judgment. The Deglaus did not file a
supplemental brief at that time, but incorporated by
reference an earlier, unsuccessful complaint they had filed
in the Western District of Pennsylvania seeking an
injunction to prevent the FDIC from confessing judgment.
See R.42a-61a (Motion, FDIC v. Deglau, CIV.A. No. 90-3594
(incorporating by reference Complaint, Deglau v. RTC, No.
90-881 (W.D. Pa. 1990)). The district court issued on the
FDIC a rule to show cause why the judgment should not be
struck or opened. At that time, the court set a discovery
deadline that was later extended. During the discovery
period, the Deglaus made two discovery requests of the
FDIC; it responded to neither and the Deglaus did not move
to compel a response. In 1992, two years after the judge
ruled it to show cause, the FDIC filed its response. At no
time did the Deglaus attempt to depose any bank officials
or other persons involved in the case. In 1994, after the

                               5

case had lain dormant for two additional years, and without
any renewed prompting by either party, the district court
without explanation issued an order denying the motion to
open or strike. R.181a (Order of Aug. 22, 1994).

In response, the Deglaus then filed a motion to vacate or
reconsider, which the district court denied. The Deglaus
appealed the 1994 order denying their motion to open or
strike the judgment, and we vacated and remanded in an
unpublished order. See FDIC v. Deglau, 107 F.3d 861 (3d
Cir. 1997). On remand, in 1997, the district court explained
its initial denial of the motion:

       It was my feeling at the time that the long periods of
       inactivity in this matter, and the failure of the
       [Deglaus] to submit a brief with their original motion,
       indicated that the Deglaus were not sincere in their
       pursuit of their equitable claims. More recently, I have
       reviewed the entire file in this matter and it is my
       feeling that the ends of justice require that the order
       entered by this Court [denying the motion] be vacated.

       R.212a. (Mem. of Sept. 20, 1997).

The judge then ordered the Deglaus to file a brief in
support of their motion.

In 1998, after the Deglaus filed the required brief, the
court again denied the Deglaus' motion to open or strike.
The trial court denied the motion to strike the judgment
because "[t]he Deglaus have not identified any `fatal defects
or irregularities' on the face of the record." R.503a (Mem. of
Jan. 16, 1998) [hereinafter Mem.] (citing Manor Bldg. Corp.
v. Manor Complex Ass'n, 645 A.2d 843 (Pa. Super. Ct.
1994)). The court denied the motion to open the judgment
because the Deglaus had "made no effort to present
evidence of meritorious defenses [to the confessed
judgment] to this Court before the date of the FDIC's
response, and failed to do so for more than two-and-a-half
years thereafter." R.503a (Mem. at 9) (emphasis added).
Further, it noted that the Deglaus initially "fail[ed] to file a
brief in support of their motion." Id. Finally, the district
court stated that in their motion and supplemental brief,
the Deglaus failed to raise meritorious defenses to the entry
of judgment. See Mem. at 10. The court went on to explain

                               6

why three of the seven defenses the Deglaus invoked were
unmeritorious.

The Deglaus challenge this determination on several
grounds. First, they argue that the judge was not

authorized to decide the motion without a request by the
parties for a decision or for a hearing. Second, they contend
that the trial court erred by denying the motion on the
basis that they did not request an argument date or
advance the cause for decision. Third, they complain that
the trial court erred by denying their motion to open or
strike the judgment on the grounds that they failed to file
an accompanying brief with the motion. Fourth, they
contend that the judge erred in holding that their
substantive arguments were insufficient to merit granting
the motion to open or strike.

II) Procedural Issues

A) Background

The parties disagree about the soundness of the judge's
determination that he could decide the motion on his own
initiative in part because they differ over whether federal or
state procedure applies. This court has stated that"a
motion to open or vacate a judgment entered in the federal
court is procedurally governed by Rule 60 [of the Federal
Rules of Civil Procedure]." Girard Trust Bank v. Martin, 557
F.2d 386, 389-90 (3d Cir. 1977); see also Resolution Trust
Corp. v. Forest Grove, Inc., 33 F.3d 284, 288 (3d Cir. 1994).
Despite this broad mandate, lower courts have occasionally
had difficulty applying Rule 60(b) because "the federal rules
have no procedure for opening a judgment entered by
confession." FDIC v. Barness, 484 F. Supp. 1134, 1141
(E.D. Pa. 1980) (Becker, J.). Some courts have tried to
apply federal rules. See, e.g., AmQuip Corp. v. Pearson, 101
F.R.D. 332, 336 (E.D. Pa. 1984); Resolution Trust Corp. v.
Parrish, CIV.A. No. 92-2050, 1992 WL 328893 at *2-*3
(E.D. Pa. 1992); Antipas, 1998 WL 306537 at *2 n.4. Other
courts have applied state procedure. See, e.g., Allied Bldg.
Prods. Corp. v. Delco Roofing Co. Inc., 951 F. Supp. 1183,
1187 n.1 (E.D. Pa. 1996) (stating that challenges to
confessed judgments are governed by Fed. R. Civ. P. 69(a),
which refers federal courts to state rules).

                               7

The broad teaching of Girard has not been overruled. We
find Allied unpersuasive. Allied held that a challenge to a
confessed judgment was governed by Federal Rule 69(a),
which deals with procedures to be used on execution of a
judgment. 951 F. Supp. at 1187 n.1. But we have
suggested that Rule 69(a) is designed merely to foreclose
conflict of law questions on the procedure to be used in the
enforcement of a final judgment. See United States v. Miller,
229 F.2d 839, 841 (3d Cir. 1956). Moreover, W.W.
Development has suggested that conceptually, a petition to
open is essentially the defensive phase of a confession of
judgment case. 73 F.3d at 1307. Following this logic, the
petition questions the validity of the creditor's judgment
and there is little basis for applying to it the procedural rule
that enable creditors to execute judgments.

Despite our feeling that Girard requires the application of
federal procedure to this case, the trial court, the defendant
and the FDIC until late in the day have assumed that
Pennsylvania procedure applied.3 Ultimately, in its 1998
_________________________________________________________________

3. The trial court explained in detail the method for entering a judgment
by confession. See R.499a-500a (Mem. at 5-6). It quoted in full PA. R.
CIV. P. 2959, which governs motions for relief from a confessed
judgment. See R.500a (Mem. at 6 n.1). It explained in its opinion that it
initially issued a Rule to Show Cause in accord with PA. R. CIV. P.
2959(b). See R.501a (Mem. at 7). It also stated that when the FDIC filed
its response to the Deglaus' motion, the Rule to Show Cause became ripe
for decision under PA. R. CIV. P. 2959(e). See R.502a (Mem. at 8).
Finally,

it cited Pennsylvania Rule of Civil Procedure 206.7, governing "Procedure
after Issuance of Rule to Show Cause." See R.503a (Mem. at 9 n.5). In
their opening brief, the Deglaus state that "the district court applied
Pennsylvania state procedure to the process." Appellant's Br. at 14 n.5.
In its brief, the FDIC suggests that Pennsylvania procedure applies,
citing the "state law incorporation" provisions of Federal Rule 69(a) and
Allied Building Products v. Delco Roofing Co., Inc., 951 F. Supp. 1183
(E.D. Pa. 1996). Appellee's Br. at 15. It then discusses the particulars
of

Pennsylvania rules. Eventually, however, the FDIC invokes federal
procedural rules, stating that Local Federal Rule of Civil Procedure 7.1
governing motion practice justified the court's decision to dispose of the
motion without oral argument. Appellee's Br. at 21. The Deglaus counter
that the federal rules do not apply, citing the dictate of Hanna v.
Plumer,

380 U.S. 460 (1965) that in diversity cases, state procedure governs.
Reply Br. at 5. The court's jurisdiction in this case was founded on the
Financial Institutions Reform, Recovery and Enforcement act of 1989
(FIRREA), 12 U.S.C. S 1819(b); 1441a(l)(1), and this argument is
therefore meritless.

                               8

memorandum denying the Deglaus' motion to open or
strike, the district court invoked Federal Rule of Civil
Procedure 74 in order to deny the motion based on the
Deglaus' original failure to file a brief. We acknowledge the
confusion on this issue, and we acknowledge that we are to
review the district court's decision -- here, its use of an
amalgam of state and federal law -- for abuse of discretion.
See Girard, 557 F.2d at 288. In order to assess whether the
district court's concoction of state-federal procedural rules
was an abuse of discretion, we review those rules and their
application to this case.

B) Review of Rules

1) Federal Rules of Civil Procedure

Rule 60(b) states that "on motion and upon such terms
as are just, the court may relieve a party or a party's legal
representative from a final judgment, order, or proceeding
[for six substantive reasons]. The motion shall be made
within a reasonable time, and for [three of the six reasons]
not more than one year after the judgment, order, or
proceeding was entered or taken. . . . [T]he procedure for
obtaining any relief from a judgment shall be by motion as
prescribed in these rules or by an independent action." FED.
R. CIV. P. 60(b). The Deglaus requested relief by motion,
which would trigger Rule 60(b)'s directive that the
procedure for obtaining relief shall be by motion as
prescribed in these rules.

This directive points us to Federal Rule of Civil Procedure
7, which governs motion practice in the federal courts. The
relevant portion of Rule 7 states: "An application to the
court for an order shall be by motion which, unless made
during a hearing or trial, shall be made in writing, shall
state with particularity the grounds therefor, and shall set
forth the relief or order sought." FED. R. CIV. P. 7(b)(1). The
broad strokes of Rule 7 are fleshed out substantially by
Local Rule of Civil Procedure 7, which governs motion
_________________________________________________________________

4. Former Local Rule of Civil Procedure 20, which governed motion
practice at the time the Deglaus filed their Rule 60 motion, is
substantially the same as current Local Rule 7. We will refer throughout
to Rule 7.

                               9

practice in the Eastern District of Pennsylvania. Local Rule
7.1(f) states that "[a]ny interested party may request oral
argument on a motion," but "[t]he court may dispose of a
motion without oral argument." E.D. PA. FED. R. CIV. P.
7.1(f). In sum, if the Federal Rules applied to this case, the
trial court was permitted to decide the motion to open or
strike at any time it wished, after the petition and answer
were filed, without hearing from the parties.

2) State Rules of Civil Procedure

According to Pennsylvania Rule of Civil Procedure 2959,
"Striking Off or Opening Judgment; Pleadings; Procedure,"
one may seek relief from a judgment by confession in a
petition stating the grounds for relief. PA. R. CIV. P. 2959(a).
"If the petition states prima facie grounds for relief the
court shall issue a rule to show cause and may grant a stay
of proceedings. After being served with a copy of the
petition, the plaintiff shall file an answer on or before the
return day of the rule. The return day of the rule shall be
fixed by the court by local rule or special order." PA. R. CIV.
P. 2959(b). "The court shall dispose of the rule on petition
and answer, and on any testimony, depositions, admissions
and other evidence. . . ." PA. R. C IV. P. 2959(e). This
language suggests that the court has discretion to decide
the motion on the parties' filings alone in the absence of
any effort to present supplemental evidence.

The suggestion in Rule 2959(e) that the court has
discretion to decide the motion on the parties'filings alone
is made explicit by Pennsylvania Rule of Civil Procedure
206.7. Titled "Procedure after Issuance of Rule to Show
Cause," Rule 206.7(c) states in full that "[i]f an answer is
filed raising disputed issues of material fact, the petitioner
may take depositions on those issues, or such other
discovery as the court allows, within the time set forth in
the order of the court. If the petitioner does not do so, the
petition shall be decided on petition and answer and all
averments of fact responsive to the petition and properly
pleaded in the answer shall be deemed admitted for the
purpose of this subdivision." PA. R. CIV. P. 206.7(c). In sum,
under current Pennsylvania Rules of Civil Procedure, once
a petition and answer have been filed, and the petitioner
has let the court's discovery period elapse, the trial court is

                               10

permitted to decide the petition on the basis of the parties'
filings alone, without notification to the parties that a
decision is imminent and without offering the parties an
opportunity to offer live testimony.5

The Deglaus protest that aside from their right to take
discovery, they had a right to present live testimony under
the Pennsylvania rules, and they protest that such
testimony was crucial to explaining why their defenses to
the confessed judgments were meritorious. See Appellants'
Br. at 22.6 In support of their argument, the Deglaus cite
Pennsylvania Rule of Civil Procedure 209, which was in
effect until January 1, 1996, when Rule 206.7 superseded
it. Rule 209 states that the petitioner (the Deglaus) has 15
days from the filing of respondent (FDIC's) answer to
"proceed . . . to take depositions on disputed issues of fact
. . . or [o]rder the cause for argument . . . ." PA. R. CIV. P.
209 (rescinded effective Jan. 1, 1996). If the petitioner fails
to do so, respondent (FDIC) can take a rule on the moving
party to show cause why he should not proceed. See id. "If
after hearing the rule shall be made absolute by the court,
and the petitioner shall not proceed, as above provided,
within fifteen days thereafter, the respondent may order the
cause for argument on petition and answer, in which event
all averments of fact responsive to the petition and properly
pleaded in the answer shall be deemed admitted for the
purposes of the rule." Id. In essence, Rule 209 dictates that
if the petitioners take no action on the case, the trial court
is not authorized to decide the motion on the parties'
_________________________________________________________________

5. The trial judge afforded the Deglaus a generous period to conduct
discovery as soon as he issued the rule to show cause. The Deglaus
made two requests of the FDIC, both of which were unanswered. The
Deglaus did not request a motion to compel responses or try to move
discovery forward in any other way. In short, they let the discovery
period lapse.

6. Many of the Deglaus' defenses turn on their interpretation of the
disputed documents, and their recollection of conversations with Horizon
officials regarding the meaning of the documents. Apparently, they feel
that the cold paper record was insufficient to demonstrate the alleged
fraud perpetrated by Horizon. For reasons discussed below, federal law
restricts them to the cold paper record for some of their defenses. See 12
U.S.C. S 1823(e).
                               11

pleadings unless the respondent requests such a decision,
the court notifies the petitioner that he will lose his right to
request oral argument in 15 days and the petitioner takes
no action within that window. At that point, the respondent
may ask the court to decide the motion on the parties'
filings.

The Deglaus correctly observe a tension between Rule
2959(e) and former Rule 209; the former seems to allow the
judge flexibility to order the case for decision, while the
latter seemed to deprive the judge of that power. The
Deglaus also properly state that many Pennsylvania courts
had honored the dictates of Rule 209 despite the suggestion
of Rule 2959(e) that the judge may decide the case on his
own initiative. See, e.g., Shainline v. Alberti Builders, 403
A.2d 577, 581 (Pa. Super. Ct. 1979) ("Until one of the
parties took action under Rule 209, or until some other
force spurred matters along, the court should not have
acted."); Corson v. Corson's, Inc., 434 A.2d 1269, 1271 (Pa.
Super. Ct. 1981) (noting that a decision is "ripe for
argument and decision upon the pleadings alone" only if a
party files a request with the court to have the case heard
on that basis in accord with Rule 209). On the other hand,
at least one Pennsylvania court has noticed the tension
between Rules 2959 and 209, and after an insightful
analysis decided that Rule 2959 trumps the more general
Rule 209. See Miller v. Wasilewski, 46 Pa. D & C.3d 46 (Ct.
C.P., Clinton County 1986) (explaining that according to
Pennsylvania Rule of Civil Procedure 132, "particular rules
control if in conflict with general rules," and noting that
Rule 2959 particularly governs motions to open or strike
confessed judgments, while Rule 209 generally governs
motion practice).

Discussing the impact of Rule 209 in the case before us
is somewhat academic, as Rule 206.7, which is like Rule
2959, is now the applicable rule of state civil procedure.
The Supreme Court explained in Landgraf v. USI Film
Products that although retroactive application of statutes is
generally frowned upon, in many situations, "a court
should `apply the law in effect at the time it renders its
decision.' " 511 U.S. 244, 272 (1994) (citing Bradley v.
School Bd. of City of Richmond, 416 U.S. 696, 711 (1974)).

                               12

This approach is particularly apt where a procedural rule is
changed after a suit arises "[b]ecause rules of procedure
regulate secondary rather than primary conduct . . .."
Landgraf, 511 U.S. at 275. The decision whether to apply a
new procedural rule "ordinarily depends on the posture of
the particular case." Id. at 275 n.29.

The district court first denied the Deglaus' Rule 60(b)
motion in 1994. In 1996, Rule 206.7 replaced Rule 209, in
effect bringing Pennsylvania's general procedural rule into
conformance with its specific rules on confessed judgments,
to make clear that a judge may decide a petition without
the parties' request. On February 19, 1997, we vacated the
district court's 1994 judgment denying the Deglaus' Rule
60(b) motion. On September 30, 1997, the trial court
ordered the Deglaus to file a brief in support of their
motion, which they had failed to do when they initially
moved to open the judgment in 1990.

The judge reconsidered the case in light of the Deglaus'
brief and the parties' actions on remand, which took place
in 1997 and 1998. He denied the Deglaus' motion to open
or strike in 1998, at that time applying Rule 206.7, which
had been in effect throughout the entire remand period.
During that period, the record reflects no efforts by the
Deglaus to request a schedule for proceeding or to request
oral argument, despite their continued contention that
testimony was crucial. See R.488a. The district court's
decision turned in part on the Deglaus' ongoing refusal to
move the case forward, presumably by failing to schedule
depositions or schedule oral argument. In short, the trial
judge was applying Rule 206.7 to the events that took place
after the 1997 remand. The posture of the case indicates
that the district judge appropriately applied a new
procedural rule to govern the secondary -- litigation-
oriented -- conduct of the parties. Landgraf expressly
condones this approach.7 Further, given the Deglaus' notice
_________________________________________________________________

7. Notably, the legislature's explanatory comments on Rule 206.7
indicate that the rulemakers intended Rule 206.7 to resolve just the type
of procedural confusion that arose when the judgefirst decided the
motion to open or strike. The Comment to Rule 206.7 states that Rule
209 "has been a source of difficulty for both the bench and bar." Rule
206.7 Explanatory Comment (1995). The new rule was intended to clarify
the proper procedure, so that "[i]f the petitioner does not proceed as
required," the petition shall be decided on petition and answer. Id.

                               13

that the district judge did not think himself obliged to hold
oral argument, they were not prejudiced by the judge's
application of a rule placing on them the burden to request
oral argument and making clear that the judge was entitled
to rule absent their request.8

To recapitulate, under the Federal Rules of Civil
Procedure to which Girard directs us, the trial court was
permitted to decide the motion on its own initiative, without
informing the parties that a decision was forthcoming or
holding oral argument. Under the Pennsylvania Rules of
Civil Procedure in effect in 1998, it was permitted to do the
same. Thus, although Girard is still good law, we cannot
say that the trial court abused its discretion by applying
aspects of both the federal and state rules of civil procedure
in order to decide the motion on its own initiative. The
outcome under both regimes is the same.

III) Substantive Issues

The district court stated that it was denying the motion
to open because the Deglaus "made no effort to present
evidence of meritorious defenses to this Court" and it noted
that they initially failed to file a brief with their Rule 60
motion, as required by Local Rule of Civil Procedure 7.
R.503a (Mem. at 9). It then discussed several of the
Deglaus' claims, and explained why they did not amount to
meritorious defenses. The district court explained that it
was denying the motion to strike the judgment because the
_________________________________________________________________

8. Along the same lines, the Deglaus argue that Rule 2959(e), by stating
that a judge may decide the motion on "petition, answer and any
testimony" requires that the trial court hold a hearing. Only one
Pennsylvania trial court has agreed with this interpretation, and the
language of Rule 206.7 specifically states that the petitioner and
respondent may take depositions "or such other discovery as the court
allows" and that if the petitioner does not pursue discovery, the trial
court may decide the issue on the petition and answer. This rule does
not require the trial court to hear testimony or hold oral argument,
though it certainly seems to permit it to do either or both. Here, the
Deglaus did not specifically request such an opportunity despite the fact
that they knew from their first effort that the trial court was not
inclined
to arrange such an exercise on its own initiative. We are not persuaded
that the court was required -- under either the federal or state rules --
to do so.

                               14

Deglaus had not identified any fatal defects or irregularities
on the face of the record, as required. See id .

A) Denial for Lack of Effort

The proper inquiry for relief under Rule 60(b) is"whether
vacating the . . . judgment will visit prejudice on the
plaintiff [and] whether the defendant has a meritorious
defense." Forest Grove, 33 F.3d at 288. The trial court here
stated that the Deglaus made "no effort to present evidence
of meritorious defenses to this court." R. 503a (Mem. at 9).
That is simply untrue. The Deglaus filed with their Rule
60(b) motion bank documents and letters exchanged
between their attorney and Horizon's which supported
several of their alleged defenses. See R.42a-116a. They
initially failed to file a supporting brief with their motion, as
required by Local Rule of Civil Procedure 20. On remand,
the trial court stated that it was initially put off by the
Deglaus' failure to pursue their motion, but now felt that
further examination of their claims was warranted. See
R.212a (Mem. of Sept. 30, 1997). He then entered an order
requiring the Deglaus to file a brief in support of their
motion. See Order of Sept. 30, 1997. Along with that brief,
the Deglaus filed hundreds of additional pages of bank
documents, corporate documents, and attorneys' letters in
support of their defenses. The paper record in existence
when the trial court decided the Rule 60(b) motion for the
second time was replete with documents supporting the
Deglaus' alleged defenses, although their admissibility was
subject to debate and is discussed below. At any rate, the
district court erred in stating that the Deglaus had made
"no effort" to present meritorious defenses.

We are similarly skeptical about the district court's
statement that it was denying the motion because the
Deglaus initially failed to file a brief in support of their
motion. While this may have been a proper ground for the
first denial in 1994, it was not appropriate the second time
around because the judge had specifically ordered the
Deglaus to file a brief and they had complied. Moreover, in
ordering the brief, the judge stated that "the ends of justice"
required further examination of the case. If so, it hardly
seems appropriate to examine the case further based on the

                               15

required brief and then reject the motion out of hand based
on an earlier and now-corrected failure to file.

We are reluctant, however, to characterize either of these
decisions as an abuse of discretion (requiring remand for a
third round of back-and-forth in this case) if we accept the
trial court's implication that the Deglaus in fact have no
meritorious defenses. See R.503a-508a (Mem. at 9-14). In
reviewing a decision for abuse of discretion, we may affirm
the trial court on any basis supported by the record. See
Tunstall v. Office of Judicial Support, 820 F.2d 631, 633 (3d
Cir. 1987). Therefore, we review the record to see whether
it supports any of the Deglaus' substantive claims. If it does
not, we will affirm the trial court's decision.

B) Analysis of Merits
In reviewing the trial court's substantive analysis, we
address again whether state or federal law governs. In
Central W. Rental Co. v. Horizon Leasing, 967 F.2d 832, 837
(3d Cir. 1992), we stated that we would look to federal
common law for guidance in deciding Rule 60(b) motions.
However, two recent Supreme Court cases have superseded
this holding. In O'Melveny & Myers v. FDIC, 512 U.S. 79,
85-86 (1994), the FDIC sued a law firm for professional
negligence and breach of fiduciary duty. The FDIC argued
that even though the cause of action arose under California
law, federal law should govern the rights of the FDIC
because it was appointed receiver of the failedfinancial
institution at issue under a federal statute, FIRREA. See id.
at 85-88. The Supreme Court roundly rejected this
reasoning, stating that where Congress has promulgated a
comprehensive and detailed statute, the court must
presume that state law rather than federal common law
governs matters unaddressed in the federal statute. See id.

The Court expounded upon this holding in Atherton v.
FDIC, 519 U.S. 213 (1997). In Atherton, the Court stated
that federal courts facing a contested issue covered by
federal statutory silence and a detailed state rule of
decision would be justified in creating special federal rules
of decision only where there is a " `significant conflict
between some federal policy or interest and the use of state
law.' " Id. at 218 (quoting Wallis v. Pan American Petroleum
Corp., 384 U.S. 63, 68 (1966)).

                               16

We intimated in Forest Grove that O'Melveny probably
required federal courts to apply Pennsylvania law to the
substantive aspects of motions to open or strike confessed
judgments. See Forest Grove, 33 F.3d at 290-91. But we
stopped short of expressly overruling Central W. Rental Co.
In Forest Grove, we explained that Central W. Rental Co.
was still good law at the time the district court acted and
therefore the district court's application of federal common
law was not a material error. See Forest Grove , 33 F.3d at
291. Second, we observed in Forest Grove that given the
facts of the case, both Pennsylvania law and federal
common law would lead to the same result. See id. We have
no reservations today about stating conclusively that
Pennsylvania law governs the substantive aspects of
motions to open or strike confessed judgments. Unlike the
district court in Forest Grove, which followed Central W.
Rental Co. in good faith, the district court in the present
case understood that O'Melveny cast doubt on Central W.
Rental Co.'s invocation of federal common law. 9 Further, in
the years since Forest Grove, Atherton underscored the
Supreme Court's antipathy to the inappropriate creation of
federal common law. Taken together, Atherton and
O'Melveny leave no doubt that Pennsylvania law should
govern the substantive aspect of Rule 60(b) motions to open
or strike judgment.

Under Pennsylvania law,

       A petition to strike and a petition to open are two forms
       of relief with separate remedies; each is intended to
       relieve a different type of defect in the confession of
       judgment proceedings. A petition to strike off the
       judgment reaches defects apparent on the face of the
       record, while a petition to open the judgment offers to
       show that the defendant can prove a defense to all or
       part of the plaintiff 's claim. Manor Building Corp., 645
       A.2d at 845 (citations omitted).
_________________________________________________________________

9. The trial court in the present case stated that we so held in Forest
Grove. See R.499a (Mem. at 5). We certainly suggested that result in
Forest Grove, but stopped short of so holding. Given, however, the
district court's reference to O'Melveny and our express holding today
that state substantive law applies, this characterization is, of course,
harmless.

                               17

1. Motion to Strike

A motion to strike a judgment will be granted only if a
fatal defect or irregularity appears on the face of the
judgment, and the defect must be alleged in the motion to
strike. See Manor Building Corp., 645 A.2d at 846. In
determining whether there is a defect, the court must
review together the confession of judgment clause
complained of and the complaint itself. See id. at 252. The
facts averred in the complaint are to be taken as true; if the
debtor disputes their truth, the remedy is a motion to open
the judgment. See id. Circumstances in which a judgment
should be stricken include a creditor's lack of authority to
confess judgment, see, e.g., Germantown Sav. Bank v.
Talacki, 657 A.2d 1285, 1291-92 (Pa. 1995); entry of
judgment by means not in accord with provisions of a
warrant of attorney, see, e.g., Scott Factors, Inc. v. Hartley,
228 A.2d 887, 888-89 (Pa. 1967); and warrants that are not
in writing, or not signed directly by the person to be bound
by them, see, e.g., Shidemantle v. Dyer, 218 A.2d 810, 811
(Pa. 1966).

The district court here articulated the proper standard for
deciding a motion to strike, and stated baldly that"the
Deglaus have not identified any `fatal defects or
irregularities' on the face of the record." R.503a (Mem. at 9).
It did not discuss what the Deglaus alleged the defect to be,
or what portion of the record defeated their allegation. We
review the district judge's Rule 60(b) analysis for abuse of
discretion. See Girard, 557 F.2d at 390. A review of the
Deglaus' original complaint reveals several general
objections to the confessed judgment, but no specific
allegations of fatal irregularities on the face of the
judgment. In their supplemental brief filed after remand,
the Deglaus specifically lay out seven problems with the
confessed judgment:

       - That Louis and Margaret Deg lau did not knowingly
       and voluntarily assent to the warrant of attorney
       provision in the Guaranty, thus making the confession
       of judgment unconstitutional;

       - That an agreement between H orizon, Kelt and G, K &
       G, which released Kelt from the notes, discharged the

                               18

       Deglaus from liability under the Guaranty; That
       Horizon and the Deglaus intended the Guaranty to
       apply only to the loan made contemporaneous with the
       Guaranty and no other loans;

       - That the Guaranty, with res pect to the spreader
       clause, was procured through fraud in the factum and
       is, thus, void;

       - That the FDIC failed to acc ount for [Kelt's payments
       on the loan] in [its] confession of judgment;

       - That as a result of the conflict of interest between
       Horizon's attorneys and the Deglaus, in the sale of Kelt
       to G, K & G, the Deglaus were not properly advised on
       their options to pay off the Kelt debt;

       - That Horizon violated the E qual Credit Opportunity
       Act, with regards to Margaret when it required her
       signature on the Guaranty even though Kelt,
       individually, was creditworthy.

       R.260a (Appellants' Brief to District Court after remand
       at 18).

All of these arguments are extrinsic to the judgment
itself, and do not appear on the face of the judgment or
record. Therefore, under Manor, 435 Pa. Super at 251 n.2,
they are not appropriate bases for striking the judgment.
The Deglaus did not, as required, allege in their motion
grounds for striking the judgment. Further, once the
Deglaus did specify their complaints about the judgment,
none of these identified a fatal irregularity apparent on the
face of the judgment. The Deglaus simply failed to meet
their burden on this score, and the district judge certainly
did not abuse his discretion in reaching this conclusion.
The denial of the Deglaus' motion to strike the judgment is
therefore affirmed.

2. Motion to Open

A motion to open is to be granted "[i]f evidence is
produced which in a jury trial would require the issues to
be submitted to the jury . . . ." Pa. R. C.P. 2959(e). Thus,
the standard of sufficiency is that of a directed verdict. See
Suburban Mechanical Contractors, Inc. v. Leo, 502 A.2d 230,

                               19

232 (Pa. Super. Ct. 1985). The district court is to view all
the evidence in the light most favorable to the petitioner
and to accept as true all evidence and proper inferences
from it which support the defense while rejecting adverse
allegations of the party obtaining the judgment. See id. The
Pennsylvania rules regarding challenges to confessed
judgment require the petitioner to offer "clear, direct,
precise and `believable' evidence" of his meritorious
defenses. Id. at 328. We review each of the Deglaus' seven
defenses individually, though the trial court reviewed just
three.

a. Due Process

The Deglaus argue that they did not knowingly waive
their due process rights to notice and a hearing. Thus, they
contend, the waiver was invalid, and the confession of
judgment violated their constitutional rights. They offer as
proof of involuntariness the Guaranty in which appears the
confession of judgment clause authorizing the judgment at
issue.10 The offending clause is, they assert, inconspicuous.
Therefore, they cannot be said to have knowingly assented
to its provisions when they signed the Guaranty. This
argument is not persuasive.

We have stated that "a judgment against a reasonably
sophisticated, corporate debtor who has signed an
instrument containing a document permitting judgment by
confession as part of a commercial transaction is
enforceable in the same manner as any other judgment."
Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250,
1272 (3d Cir. 1994) (citing Swarb v. Lennox, 405 U.S. 191
(1972)). Louis Deglau takes issue with the trial court's
adoption of the finding of another judge that he was a
sophisticated businessman.11 But he does not argue that he
_________________________________________________________________
10. Some of the promissory notes the Deglaus signed included confession
of judgment clauses; the Deglaus do not seem to be challenging those,
perhaps because they were conspicuously presented on different pages
in different typefaces. See, e.g., R.303a-04a; R.312a-14a.

11. The trial court in the Western District of Pennsylvania, which
rejected the Deglaus' request for an injunction barring the FDIC from
confessing judgment, found Louis to be a sophisticated businessman.
See Deglau v. RTC, No. 90-881 (W.D. Pa. 1990).

                               20

was a neophyte, probably because he was not. For
instance, Pennsylvania courts have identified as signs of
sophistication an individual's formation of a corporation,
application for access to large sums of money, experience in
business and a business involving large financial
transactions. See Denlinger v. Dendler, 415 Pa. Super. 164,
173-74 (1992). When he signed the Guaranty, Mr. Deglau
was seeking access to a credit line of at least $50,000 and
had received $1.5 million from the institution in the past;
he had formed Kelt; and he had a longstanding relationship
with the bank. He was a sophisticated businessman, and
under Jordan, we are inclined to treat this confessed
judgment as "enforceable in the same manner as any other
judgment." 20 F.3d at 1272.

We look further only to scotch Louis Deglau's assertion
that his waiver of the right to notice and an opportunity for
hearing were not voluntary because the warrant of attorney
provision in the Guaranty was inconspicuous. Louis derives
this argument from dicta in Jordan warning against
inclusion of a warrant of attorney provision in"a mass of
fine type verbiage on each reverse sheet." See id. at 1275
(quoting Cutler Corp. v. Latshaw, 97 A.2d 234, 236 (Pa.
1953)). He relies, too, on Germantown Manufacturing Co. v.
Rawlinson, 491 A.2d 138, 146 (Pa. Super. Ct. 1985). In
Germantown, the court again cautioned against
unanticipated clauses appearing in the boilerplate of a
printed form, if not understood by the signer. See id. These
cases are far afield of Mr. Deglau's situation, and thus do
not support his argument.

The court in Jordan warned against inconspicuous
waivers, but did not invalidate a warrant of attorney clause
appearing on the third page of a four-page document,
apparently in unremarkable type. See Jordan, 20 F.3d at
1256. If the paragraph in Jordan's four-page document was
not problematic, certainly the paragraph in Louis Deglau's
two-page Guaranty cannot be problematic. In Germantown,
the court specifically stated that waivers in boilerplate were
typically found unconscionable "only in consumer cases
and courts have exhibited some reluctance to apply it in
cases dealing with merchant-to-merchant contracts." 491
A.2d at 146. We therefore affirm the trial court's

                                  21

determination that the Deglaus' due process rights were not
infringed.12

b. Equal Credit Opportunity Act

The court below rejected the argument that Margaret was
"discriminated against" contrary to the provisions of the
Equal Credit Opportunity Act, 15 U.S.C. S 1691 et seq. The
Deglaus did not raise this issue in their opening brief on
appeal. They have therefore waived it, and we will not
address it. See, e.g., Brenner v. Local 514, United
Brotherhood of Carpenters, 927 F.2d 1283, 1298. (3d Cir.
1991).

c. Remaining Claims

The Deglaus' remaining claims are that the FDIC failed to
account for payments made on the debt; that a subsequent
agreement partially released Kelt and therefore released the
Deglaus as guarantors; that the spreader clause in the
_________________________________________________________________

12. The Deglaus intimate that they were denied due process because the
trial court did not schedule a hearing on their motion to open or strike
the judgment. The Jordan court stated that"opportunity for a prompt
post-seizure hearing" was a key guarantee of due process. 20 F.3d at
1271 (quoting Jordan v. Berman, 758 F. Supp. 269, 279-80 (E.D. Pa.
1991)). But the Deglaus had an opportunity for a hearing. Under both
Rule 7 of the Local Rules of Civil Procedure for the Eastern District of
Pennsylvania and Rule 206.7 of the Pennsylvania Rules of Civil
Procedure, they were permitted to ask for oral argument. The first time
the trial court decided the motion on its own initiative, the Pennsylvania
Rules of Civil Procedure in effect suggested that the trial court needed
to

invite the Deglaus to schedule a hearing before he could take
independent action. Though, as discussed above, the state procedural
rules are of doubtful application to this case, the confusion on that
issue

and the Deglaus' apparent belief that they retained the right to oral
argument until they rejected the judge's invitation might have amounted
to deprivation of a hearing in the first round of this lawsuit. But in the
second round, the Deglaus were fully aware that this judge was inclined
to take the bull by the horns and they still did not take advantage of
their right to schedule a hearing. Moreover, by the time the trial court
took the case on remand, the Pennsylvania Rules of Civil Procedure had
been amended to disabuse the Deglaus of their mistaken belief that they
could tarry with impunity. In light of these circumstances, we cannot say
the Deglaus were denied an opportunity for a hearing, which is all that
Jordan requires.

                                22

Guaranty was intended by the parties to apply to just the
$200,000 loan and to no other; that the bank committed
fraud in the factum in inducing the Deglaus to sign the
disputed Guaranty; and that the Guaranty was not valid
because it was the product of a conflict of interest. In
support of these claims, the Deglaus have submitted
numerous documents generated by themselves and by
Horizon. The district court refused to consider these
documents, stating that they were "side agreements" with
the bank barred by the D'Oench Duhme doctrine. See
D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942). We
first address the current status of the D'Oench Duhme
doctrine, and then move on to the merits of the individual
claims in light of our D'Oench Duhme analysis.

Under the doctrine announced by the Supreme Court in
D'Oench Duhme, side agreements not documented in the
official records of a failed institution taken over by the FDIC
are legally inadmissible to diminish or defeat the interests
of the FDIC. See id. at 461. In 1950, Congress adopted the
D'Oench Duhme doctrine in amendments to the Federal
Deposit Insurance Act. In 1989, it codified a more detailed
and precise version of the D'Oench Duhme doctrine as part
of FIRREA to test whether agreements are enforceable
against the FDIC. See 12 U.S.C. S 1823(e). Section 1823(e)
generally requires that in order for an agreement to be
enforceable against the FDIC, it must: (1) be in writing; (2)
be executed by the depository institution and the person
claiming an adverse interest under it contemporaneously
with the acquisition of the asset by the depository
institution; (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 addressing a financial institution's safety and
soundness will not be aware of a bank's oral undertakings."
See Central W. Rental Co., 967 F.2d at 841.

Atherton, 519 U.S. 213 (1997), and O'Melveny, 512 U.S.
79 (1994), again rear their heads to cast doubt on the
current standing of the federal common-law D'Oench
Duhme doctrine. Recall that in those cases, the Supreme
Court mounted a campaign against the judicial creation of

                                23
federal common law. In recent years, several circuit courts
have concluded that D'Oench Duhme is no longer viable as
federal common law in the wake of these cases. The D.C.
Circuit has flatly held that the Supreme Court's reasoning
in O'Melveny "appears to leave no room for a federal
common law D'Oench doctrine" because FIRREA's statutory
provisions superseded it. Murphy v. FDIC, 61 F.3d 34, 39
(D.C. Cir. 1995). The Eighth Circuit has stated that
"O'Melveny removes the federal common law D'Oench
Duhme doctrine . . . ." DiVall Insured Income Fund Ltd.
Partnership v. Boatmen's First Nat'l Bank, 69 F.3d 1398,
1402 (1996). The Ninth Circuit has held that, while
D'Oench has not been overruled by Atherton and O'Melveny,
it was not applicable in a case where the FDIC was simply
acting as a receiver of a failed institution, because no
compelling federal interest was at stake. See Ledo Fin. Corp.
v. Summers, 122 F.3d 825, 828-29 (9th Cir. 1997). The
Eleventh Circuit held that O'Melveny was meant to halt the
creation of new federal rules of decision, but did not
abrogate application of existing federal common law, such
as the D'Oench doctrine. See Motorcity of Jacksonville, Ltd.
v. Southeast Bank, N.A., 83 F.3d 1317, 1330 (11th Cir.
1996). But the Supreme Court vacated Motorcity and
remanded it "for further consideration in light of Atherton v.
Federal Deposit Insurance Corporation." Hess v. FDIC, 519
U.S. 1087 (1997). We agree with the Eighth, Ninth and D.C.
Circuits that D'Oench is not applicable federal common law
in light of O'Melveny and Atherton. The Supreme Court
explained that where it found "federal statutory regulation
that is comprehensive and detailed," it would not
supplement that scheme with federal common law.
O'Melveny, 512 U.S. at 85. Section 1823(e) is
comprehensive and detailed, and under O'Melveny and
Atherton we do not think D'Oench is needed to supplement
it.

The district court rejected the Deglaus' proffered evidence
of fraud and conflict of interest, stating that it was
inadmissible under D'Oench. See R.504a (Mem. at 10). It
did not specifically discuss the claims of release, of
miscalculation or of the parties' intentions about the
spreader clause. We may presume that because those
claims were supported with many of the same unexecuted

                               24

documents and correspondence supporting the fraud and
conflict claims, the court found the evidence inadmissible
under D'Oench and the claims so unmeritorious that
discussion was unnecessary. The trial court erred in
applying D'Oench to these claims. But in explaining the test
for admissibility against the FDIC, the trial court also
quoted section 1823(e). See id. Thus, although we find
D'Oench outmoded, we may affirm the trial court's analysis
under section 1823(e) if it did not constitute an abuse of
discretion.

i. Fraud in the Factum

The Deglaus' first claim is that Horizon committed fraud
in the factum because officials told them that the Guaranty
they were signing would secure only the loan presently
advanced, rather than all of Louis's then-outstanding loans
(including the $1.5 advanced to Kelt in 1985), and any
future loan. Appellant's Br. at 28. The trial court stated
that the fraud defense was based on a side agreement not
documented in any official bank record, and therefore the
agreement was not enforceable against the FDIC under
section 1823(e). R. 504a-05a (Mem. at 10-11). Presumably,
the district judge concluded that the dearth of admissible
evidence meant this claim would not withstand a motion for
directed verdict. The Deglaus contend that section 1823(e)
does not apply to the real defense of fraud in the factum.
Appellant's Br. at 28. In a sense, the Deglaus are right. The
Supreme Court has held that an instrument resulting from
fraud in the factum is not governed by section 1823(e). See
Langley v. FDIC, 484 U.S. 86, 93-94 (1987). But in another
sense, the Deglaus are wrong. Fraud in the factum is
defined as "fraud that procures a party's signature to an
instrument without knowledge of its true nature or
contents." Id. at 93. There was no such fraud here.

The Deglaus have produced internal bank memoranda
from 1987-88 and a series of letters exchanged in 1988 and
1989 between their attorney and Meyer (the Board member
and attorney who allegedly induced the Deglaus to sign the
Guaranty without counsel). None of these documents
suggest that in 1985 Louis Deglau did not know the nature
of the Guaranty he was signing. At most, they suggest that
Mr. Deglau interpreted the Guaranty to apply to the instant

                                25

loan, while Horizon interpreted it to apply to other loans as
well. Compare R.422a (letter from Louis' lawyer stating "All
concerned have recognized that Lou has disputed the
responsibility for the [larger] figure from the beginning");
with R.424a (letter from Meyer stating that"in light of the
documentation, it would appear that there is no question of
the personal liability [for the larger amount]"). Notably,
Meyer's letter states that Horizon officers "do not have first
hand knowledge of the facts concerning the development of
the relationship between Lou Deglau and Horizon." R.424a.
Interpreted in Mr. Deglau's favor, this evidence suggests at
most an oral, undocumented agreement between himself
and someone affiliated with Horizon that the Guaranty
would be limited to $200,000 despite the words of the
document. Such an agreement does not constitute fraud in
the factum. Further, it is the paradigmatic "secret"
arrangement barred by section 1823(e). If, as Meyer's letter
suggests, the Horizon board was unaware of the
circumstances surrounding the Guaranty, regulators could
not glean such a fact by reviewing bank records. Finally,
Mr. Deglau has documented only a dispute about the
amount secured by the Guaranty; he has not documented
an agreement resolving that dispute in his favor. Even if
there were such an agreement, it is not in writing, it had
not been approved by the Horizon board and it had not
been in the bank's official records. Therefore it cannot be
considered under section 1823(e). The trial court did not
abuse its discretion in finding that the Deglaus had failed
to produce evidence of fraud in the factum sufficient to
withstand a motion for directed verdict.

ii. Conflict of Interest

The Deglaus next contend that the trial court erred in
finding that their conflict of interest claim could not be
proven because of the section 1823(e) bar. They claim that
when Louis Deglau sold the troubled Kelt, Meyer
encouraged Louis to conceal the transaction from his own
attorney. Instead of Louis' having separate representation,
Meyer purported to represent both Louis and Horizon in the
sale. See Appellant's Br. at 29. But the Deglaus argue that
because Meyer's loyalties were conflicted, he did not advise
them of all of their options regarding repayment of the Kelt

                               26

debt. See id. They state that such a conflict of interest, or
misrepresentation, is not governed by 1823(e) because it is
not the sort of arrangement typically documented in bank
records. Therefore, the absence of mention in bank records
is irrelevant, they contend. This view would be entirely
defensible in appropriate circumstances. See, e.g., Desmond
v. FDIC, 798 F. Supp. 829, 836 (D. Mass. 1992) (lawyer's
conflict of interest is an external fact that is peripheral to
agreement and not necessarily governed by section 1823(e)).

However, even if we reject the district court's approach
and consider the evidence the Deglaus offer, we do not find
enough to withstand a motion for directed verdict. In
defense of this claim, the Deglaus refer us to their own
complaint filed in the Western District of Pennsylvania
seeking an injunction against the FDIC's confession of
judgment. The allegations of that complaint are, of course,
merely allegations and not evidence. Moving on, the
Deglaus point us to minutes of a Horizon board meeting
that show Meyer was a Horizon board member. See
Appellant's Br. at 29 (citing R.298a). Finally, they cite
Meyer & Flaherty's bill for services rendered to both Mr.
Deglau and Horizon during the sale of Kelt. See id. (citing
R.405-06a). These documents do not adequately
demonstrate the type of conflict that would justify opening
the judgment. In Desmond, the client whose attorney had a
conflict of interest was not aware of the lawyer's divided
loyalties. See id., 798 F. Supp. at 831. And in Slater v.
Rimar, Inc., another case offered by the Deglaus, the
Pennsylvania Supreme Court stated that attorneys are not
permitted to represent conflicting interests except by
express consent of all concerned. 338 A.2d 584 (Pa. 1975).
In this case, Louis was aware that Meyer sat on Horizon's
board and represented Horizon's interests as well as his
own. And despite Louis' longstanding representation by
another law firm, he elected to conceal the Kelt sale from
that firm and relied on Meyer's advice. In short, Louis'
proffered evidence shows that, with full knowledge that
Meyer's loyalties were divided, Louis elected to rely on him.
This evidence therefore shows a conflict that, if it existed,
was given full consent by Louis and there is nothing that
warrants opening the judgment. The district court did not

                               27

abuse its discretion in declining to open the judgment on
this ground.

iii. Intentions of the Parties Regarding the Spreader
       Clause in the Guaranty

The November 1985 Guaranty includes a spreader
clause, which states:

       [T]he Undersigned hereby unconditionally guarantees
       to Lender the prompt payment to Lender at maturity or
       on acceleration of every note, check, bill of exchange,
       draft, trade acceptance, loan, advance, discount and
       order for the payment of money, and all other
       obligations, in connection with which, either as maker,
       drawer, guarantor, endorser or otherwise, whether
       directly or contingently, Borrower is or shall hereafter
       become liable to Lender whether created directly or
       acquired by Lender by assignment or otherwise,
       whether matured or unmatured and whether absolute
       or contingent, with interest thereon, together with all
       attorney's fees, costs and expenses of collection
       incurred by Lender in connection with any matter
       covered by this Agreement . . . .

R.309a (emphasis added).

Louis contends that, when he and Margaret signed the
Guaranty, both they and Horizon officials "understood" that
the Guaranty covered only the loan given at the time of the
Guaranty, despite the fact that the language of the clause
makes Deglau liable for all existing obligations (at the time,
Louis had a $1.15 million loan outstanding) and all future
obligations.13 In support of this argument, Louis offers a
Horizon "credit request summary" prepared in 1987, a 1988
memo prepared by Meyer on Horizon letterhead stating that
Deglau was personally liable on just the $200,000 loan; a
summary of Deglau's commitments prepared by Horizon's
Commercial Loan Department which states that the
Guaranty applies to just one loan; a 1988 "Analysis of Kelt,
Inc. Modification," which indicates that at one time a
_________________________________________________________________

13. Louis said he initially applied for a $50,000 loan, but signed a blank
Guaranty. The loan amount eventually filled in was $200,000, and Louis
agrees he is liable for that amount. Appellant's Br. at 25.

                                28

Horizon official took the position that the Deglaus had
secured $460,000 borrowed after they signed the Guaranty,
but did not secure a $1.15 million loan predating the
Guaranty; and a series of letters exchanged between the
Deglaus' attorney and Meyer regarding the dispute over the
secured amount.

The district court did not discuss the merits of this claim.
We must first decide whether under section 1823(e) we may
consider any of the evidence Louis offers and, if so, whether
that evidence is sufficient to withstand a motion for
directed verdict. In order for a document to be admissible
against the FDIC under section 1823(e), it must: (1) be in
writing; (2) be executed by the depository institution and
the person claiming an adverse interest thereunder,
contemporaneously with the acquisition of the asset by the
depository institution; (3) be approved by the board of
directors of the depository institution and reflected in the
minutes of the board's meetings; and (4) have been an
official record of the depository institution continuously
since its execution. See Central W. Rental Co. , 967 F.2d at
841. Each of the proffered documents is in writing.
However, none was executed by both parties. The credit
request summary was signed by just a bank officer; the
Commercial Loan Department summary and proposed
modification appear to have been prepared by the bank, but
were signed by neither party; the series of letters exchanged
between the attorneys were not executed by both parties.
Thus, all of these documents fail the second requirement of
section 1823(e), and all are inadmissible. Further, none was
executed contemporaneously with Horizon's acquisition of
the assets in question. And, while the documents strongly
suggest an alleged Horizon view that Deglau had not
personally guaranteed the $1.15 million loan, "such
suggestive evidence does not amount to a valid written
agreement itself." Castleglen, Inc. v. Resolution Trust Corp.,
984 F.2d 1571, 1579 (10th Cir. 1993) (citing Beighley v.
FDIC, 868 F.2d 776, 783 (5th Cir. 1989).

The details of Castleglen are instructive. In that case, the
purchaser of an apartment complex maintained that the
financial institution which sold the property guaranteed
that the buyer would need to contribute just $600,000

                                29

before the project broke even. See Castleglen , 984 F.2d at
1574. In support of this contention, the buyer offered a
loan committee approval memorandum referencing an
amount of money needed before the project "reaches break-
even;" an operating agreement providing that the buyer
would deposit $600,000 into escrow to secure payment for
a start-up period; and a memorandum to the Senior Loan
Committee discussing the escrow account. See id. at 1579
n.4. The court determined that, while these documents
suggested that the bank had held this view, they did not
amount to a written agreement that could be admitted
against the FDIC under section 1823(e). See id. at 1579.
The documents in the present case similarly suggest the
bank's understanding, but do not amount to a written
memorialization of it. Moreover, unlike the
contemporaneous documents deemed "suggestive" of the
bank's view in Castleglen, the documents offered by Deglau
were prepared after the Guaranty was signed. The
argument that they were integral to the Guaranty is,
therefore, weak. In sum, the documents may not be
considered, and therefore the Deglaus failed to present
evidence of this defense sufficient to withstand a motion for
directed verdict. We affirm the district court with respect to
this issue.

iv. Horizon's Release of Kelt

In 1988, Kelt assigned its rights to certain reclamation
sites to a company known as G, K & G. Deglau contends
that Horizon, Kelt and G, K & G entered an agreement
under which G, K & G was to pay amounts due to Kelt
directly to Horizon. "If [G, K & G] performed, the effect of
this provision was to release Kelt from the notes that were
secured by the lease under the agreement." Appellant's Br.
at 23. Louis Deglau contends that G, K & G made several
payments to Horizon, effectively releasing Kelt from a
portion of the debt on which the FDIC later confessed
judgment. Id. In support of this contention, Deglau proffers
the agreement executed by Kelt and G, K & G; a
memorandum that appears to have been produced by Kelt
for G, K & G; several documents memorializing the Kelt-G,
K & G agreement; and one apparently excerpted page of an
agreement between Horizon and G, K & G. According to the

                               30

agreements between Horizon, G, K & G and Kelt, Horizon
agreed not to "pursue collection of the obligation or
obligations due it from Kelt, Inc. . . . so long as G, K & G.
. . . proceed[ed] to process the coal gob or reject piles, sell
the products of such processing and pay all sums due Kelt,
Inc." directly to Horizon. R.447a. The record shows monthly
payments from G, K & G. to Horizon throughout 1989,
totaling about $95,000. See R.454a-460a.

None of these documents meets the requirements of
section 1823(e) because none was executed by both Deglau
and Horizon. Deglau insists, nevertheless, that they are
admissible against the FDIC because they pertain to the
release of an obligation, and thus do not deal with an asset
of Horizon. FDIC v. McFarland, 33 F.3d 532 (5th Cir. 1994),
explains that obligations released prior to FDIC takeover of
an institution are not assets and therefore not subject to
section 1823(e). See id. at 537-38. McFarland also states
that "where the asset has been discharged by the payment
and cancellation of the underlying debt" before FDIC
takeover, documents that do not meet the strictures of
section 1823(e) may be used to defend against a claim for
payment of the discharged debt. Id. at 538. On the other
hand, if it is possible for a court to find that an obligation
was not discharged, the FDIC has an "asset" and the "no
asset" exception to section 1823(e)'s ban on unofficial
documents would not apply. See Adams v. Madison Realty
& Dev. Inc., 937 F.2d 845, 857 n.5 (3d Cir. 1991).

Louis claims that Horizon released Kelt, and the FDIC
flatly disputes this claim. The district court did not resolve
the factual question whether Horizon released Kelt, though
the documents in the record suggest Horizon may have
done so. This factual uncertainty leaves us midway between
authorities. If Horizon released Kelt, and no asset remains,
McFarland permits consideration of the unofficial
documents; if a court could find there was no release,
Adams bars consideration of the unofficial documents.
Viewing the facts in the light most favorable to Louis, there
was a potential discharge here, in which case the
documents could be admitted, and there would be enough
evidence on this claim to withstand directed verdict. The
district court's failure to examine a potentially winning

                               31
argument was an abuse of discretion. We therefore vacate
the trial court's denial of the Deglaus' Rule 60(b) motion to
open the judgment and remand for review of the merits of
the Deglaus' "release" argument.

v. Calculation of Judgment Amount

Finally, Louis Deglau argues that the FDIC improperly
confessed judgment for the face value of the loans, despite
the fact that official bank documents suggested the loans
had been partially paid down. Part of the payment was
reflected by the G, K & G installment payments discussed
above. Other payments apparently resulted from Louis's
agreement to forego the salary he was to receive as
president of Kelt; he contends that the parties agreed that
the forfeited salary was intended to be applied against the
debt secured by the Guaranty. See Appellant's Br. at 27.
Throughout 1989, G, K & G paid about $95,000; Mr.
Deglau states that in 1986, Kelt paid $168,830.21 of
principal to Horizon.14 Louis has presented no official bank
documents in support of this argument but, as discussed
above, discharge of debt falls into the "no asset" exception
to section 1823(e). See, e.g., McFarland, 33 F.3d at 537-38.
Therefore, evidence other than official bank records is
admissible. Louis has presented letters from G, K & G to
Horizon detailing monthly payments, as well as letters
exchanged between his lawyer and Meyer in which the
status of his forfeited salary is debated. Viewing this
evidence in the light most favorable to the petitioner and
accepting all proper inferences from it, as we must, we
conclude that Deglau has presented sufficient evidence of
these discharges to withstand a motion for directed verdict.
See Suburban Mechanical Contractors, 502 A.2d at 232. The
district court did not discuss this defense at all in its
memorandum, and despite the fact that sufficient evidence
on this defense was provided to withstand a directed
verdict, the trial court denied the Rule 60(b) motion to open
the verdict. This was an abuse of discretion, and the denial
is vacated.
_________________________________________________________________

14. How much of this reflects foregone salary, and how much reflects
satisfaction of the debt is unclear.

                               32

IV) Conclusion

In sum, we find that the trial court -- under both federal
and state procedural law -- was entitled to decide the
Deglaus' Rule 60(b) motion on its own initiative. However,
in light of the Deglaus' prompt filing of the motion and the
subsequent, understandable confusion about the applicable
procedural rules, the trial court abused its discretion by
denying the motion on the basis of the Deglaus' passivity,
rather than on the merits of their substantive arguments.
Similarly, although the Deglaus did err by failing to file a
brief with their Rule 60(b) motion in 1990, the trial court
permitted them to correct that error when it took the case
on remand. Denying the Deglaus' motion because of the
initial technical failure was improvident, particularly given
the serious due process functions served by the availability
of a motion to open or strike a confessed judgment."A
warrant of attorney authorizing judgment is perhaps the
most powerful and drastic document known to civil law
. . . . The signing of a warrant of attorney is equivalent to
a warrior of old entering a combat by discarding his shield
and breaking his sword. For that reason the law jealously
insists on proof that this helplessness and impoverishment
was voluntarily accepted and consciously assumed." Cutler
Corp. v. Latshaw, 97 A.2d at 236. We hesitate, however, to
call this ruling an abuse of discretion unless it caused the
trial court to inadvertently overlook any meritorious
defenses that would have warranted opening the judgment.
Our review reveals two defenses on which the Deglaus have
produced sufficient documentation to withstand a motion
for directed verdict and therefore to warrant opening the
judgment. Hence, we hold that the trial court's refusal to
open the judgment on two grounds -- Horizon's possible
partial release of Kelt and the partial repayment of the
loans on which the FDIC confessed judgment -- was an
abuse of discretion. We therefore REVERSE the trial court's
denial of the Rule 60(b) motion on these two grounds and
REMAND these two matters for further proceedings. We
AFFIRM the trial court's decision in all other respects.

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A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                               34