27 F.3d 850 (3rd Cir. 1994), 93-5328, F.D.I.C. v. Bathgate

Docket Nº:93-5328, 93-5507.
Citation:27 F.3d 850
Party Name:FEDERAL DEPOSIT INSURANCE CORPORATION, As Receiver for the First National Bank of Toms River, New Jersey v. Lawrence E. BATHGATE, II; Novasau Associates, A New Jersey Limited Partnership; New NAS, Inc.; T. Pamela Bathgate; 54 Buena Vista Associates, A New Jersey Limited Partnership; Tuscol Development, Inc., A New Jersey Corporation; Old Monmouth A
Case Date:May 05, 1994
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 850

27 F.3d 850 (3rd Cir. 1994)

FEDERAL DEPOSIT INSURANCE CORPORATION, As Receiver for the

First National Bank of Toms River, New Jersey

v.

Lawrence E. BATHGATE, II; Novasau Associates, A New Jersey

Limited Partnership; New NAS, Inc.; T. Pamela Bathgate;

54 Buena Vista Associates, A New Jersey Limited Partnership;

Tuscol Development, Inc., A New Jersey Corporation; Old

Monmouth Associates, A New Jersey Partnership; Airport

Associates, A New Jersey Partnership; Gerald A. Gura; the

Club at West Deptford, A Limited Partnership, A New Jersey

Limited Partnership; State of New Jersey; Columbia Savings

and Loan Association; Asset Recovery Management, Inc.;

William Bowman Associates, Inc.; National Westminster Bank

NJ, Successor To First Jersey National Bank/South.

Lawrence E. BATHGATE, II; Novasau Associates; New NAS,

Inc.; 54 Buena Vista Associates, A New Jersey Limited

Partnership; Tuscol Development, Inc., A New Jersey

Corporation; Old Monmouth Associates, A New Jersey

Partnership, Third-Party Plaintiffs,

v.

William BARLOW; John C. Fellows, Jr.; Ebert L. Hall;

Joseph P. Iaria; David E. Johnson, Jr.; Irene F. Kramer;

Jacqueline F. Pappas; John F. Russo; Leonard G. Lomell;

Office of the Comptroller of the Currency; John McDougal,

Third-Party Defendants.

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for the

First National Bank of Toms River

v.

NLA ASSOCIATES LIMITED PARTNERSHIP, A New Jersey Limited

Partnership; LGP-I Limited Partnership, A New Jersey

Limited Partnership; LGP-I Capital Corp., A New Jersey

Corporation; New NAS, Inc.; Lawrence E. Bathgate, II;

Alan B. Landis; Novasau Associates, A Limited Partnership,

A New Jersey Limited Partnership.

Lawrence Bathgate, II; Novasau Associates, Limited

Partnership; New NAS, Inc.; 54 Buena Vista Associates;

Tuscol Development, Inc.; and Old Monmouth Associates (the

Bathgate defendants), Appellants.

Nos. 93-5328, 93-5507.

United States Court of Appeals, Third Circuit

May 5, 1994

Argued March 25, 1994.

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Paul R. Rosen (argued), Bruce S. Marks, Spector, Gadon & Rosen, P.C., Philadelphia, PA, for appellants.

Ann S. Duross, Asst. Gen. Counsel, Colleen B. Bombardier, Sr. Counsel, John P. Parker (argued), Sr. Atty., F.D.I.C., Washington, DC, Craig M. Lessner, Michael O'B. Boldt, Bourne, Noll & Kenyon, Summit, NJ, for appellee F.D.I.C.

Joel M. Leifer (argued), Mark H. Moore, Daniel Hume, Hertzog, Calamari & Gleason, New York City, for appellees William Barlow, John C. Fellows, Jr., Ebert L. Hall, Joseph P. Iaria, David E. Johnson, Jr., Irene F. Kramer, Jacqueline F. Pappas, and Leonard G. Lomell.

Before: GREENBERG, COWEN, and NYGAARD, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. FACTUAL AND PROCEDURAL HISTORY

A. Factual History

Lawrence E. Bathgate, II, borrowed over $19 million from the First National Bank of Toms River, N.J. (the Bank) between 1986 and 1990. These loans were evidenced by the following seven promissory notes:

1. a $185,000 promissory note secured by a 1985 Rolls Royce;

2. a $1,620,000 promissory note secured by a mortgage on property in Mantoloking, N.J.;

3. a $2.0 million promissory note secured by mortgages on two properties located on Buena Vista Drive in Rumson, N.J.;

4. a $4.0 million "Line of Credit Master Note" payable on demand and secured by assignments of a $1.6 million note and mortgage executed by Airport Associates and a $6,280,000 note and mortgage executed by Gerald A. Gura;

5. a $187,500 promissory note;

6. an $11.5 million line of credit secured by

(a) second mortgages, security agreements, and assignments of rent on two properties located on Buena Vista Drive in Rumson, N.J.;

(b) a second mortgage, security agreement, and assignment of rent on property located in Mantoloking, N.J.;

(c) a mortgage, security agreement, and assignment of rent on property located in Howell, N.J., executed by Tuscol Development, Inc.;

(d) a mortgage, security agreement, and assignment of rent on a second piece of property in Howell, N.J., executed by Old Monmouth Associates;

(e) a collateral assignment of partnership interest on properties located in Freehold, N.J., and Jackson, N.J.;

(f) a collateral assignment of partnership interest in Vintage-Pointe Associates;

(g) a collateral assignment of a partnership interest in Bedford Village Associates; and

(h) a collateral assignment of a partnership interest by Novasau Associates in itself and in NLA Associates; and

7. a $250,000 promissory note payable on demand. Federal Deposit Ins. Corp. v. Bathgate et al., Civ. No. 91-2779 (consolidated), Memorandum and Order at 2-3, 1993 WL 661958 (D.N.J. Mar. 18, 1993) (see Bathgate defendants' App. I at 19-20).

In 1989, Bathgate also executed an unconditional guaranty securing 25 percent of a $1.8 million "Agreement for Commercial Letter of Credit" between NLA Associates, LGP-I Limited Partnership, and Novasau Associates and the Bank. Id. at 3 (see Bathgate

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defendants' App. I at 20).

[1] Alan B. Landis secured the remainder of this obligation to the Bank.

Bathgate defaulted on the $11,500,000 note by failing to make the required monthly and quarterly payments beginning on October 1, 1990. On February 15, 1991, Bathgate also defaulted on the $187,500 note by failing to make the required monthly payment.

On February 26, 1991, the Bank wrote a 13-page letter to Bathgate regarding the $11,500,000 note, the $187,500 note, the $4,000,000 note, the $250,000 note, and the $1,800,000 unconditional guaranty. See Bathgate defendants' App. II at 629. This letter is at the heart of this action. The letter begins by stating that the Bank "has agreed to modify and consolidate" these obligations, and the majority of the letter details the terms and conditions of the modification. Id. The letter was signed by William Carlough, Senior Vice President, and indicated that he sent copies to Douglas Johnson, the Bank's President and CEO, and Charles R. Berman, an attorney at Bourne, Noll & Kenyon. Id. at 642.

The following are the most significant provisions of the letter: (1) the "commitment" was subject to Bathgate's "acceptance and return to the Bank, fully executed, by 2/26/91," id. at 641; (2) the "commitment shall expire and shall be of no further effect if the transactions contemplated by this commitment are not closed by 4/1/91," id.; (3) the "bank shall be represented in this transaction by the firm of Bourne, Noll & Kenyon, ... which will prepare all documents in this transaction," id. at 637; and (4) "[t]he Borrower and the Bank shall execute and deliver all documentation required by the Bank in connection with the issuance of the Loan and the Collateral[,]" id. The February letter also identifies specific documents Bathgate was to furnish to the Bank counsel prior to the closing of the transactions contemplated by the letter, id. at 635-37 (see also Bathgate defendants' App. II at 603-05), 639-40,

[2] and states that Bathgate must provide "[s]uch other information, documents, certificates, financial statements or opinions reasonably required by the Bank and its counsel," id. at 637.

Though Bathgate executed and delivered the February letter to the Bank on February 26, 1991, the proposed restructured loan never was closed. In a letter dated April 11, 1991, the Bank formally demanded payment of two notes on which Bathgate had failed to make payments (the $11,500,000 note and the $187,500 note) and three notes payable on demand (the $4,000,000 note, the $250,000

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note, and the $1,800,000 note). Bathgate defendants' App. I at 310.

On April 8, 1991, Bathgate failed to make a required payment on the $185,000 note. In a letter dated May 1, 1991, the Bank formally demanded payment of the $185,000 note, and in a second letter dated May 1, 1991, the Bank formally demanded payment of the $1,800,000 note by Bathgate, NLA, and Landis. Bathgate failed to make the payments demanded on these six notes, and NLA and Landis failed to make the payments demanded of them on the $1,800,000 note.

B. Procedural History

On May 3, 1991, the Bank filed two suits in the Superior Court of New Jersey to collect the amounts outstanding under the six notes for which Bathgate had failed to make demanded payments: (1) the $11,500,000 note; (2) the $187,500 note; (3) the $4,000,000 note; (4) the $250,000 note; (5) the $185,000 note; and (6) the $1,800,000 note. In one of the state court actions, the Bank sought judgment against Landis, NLA Associates Limited Partnership, LGP-I Limited Partnership, and LGP-I Capital Corporation (the Landis defendants), and against Bathgate, Novasau Associates, and New Nas, Inc. for the amount outstanding under the $1,800,000 note. In the other state court action, the Bank sought judgment against Bathgate and Novasau Associates for the amounts outstanding under: (1) the $11,500,000 note; (2) the $187,500 note; (3) the $4,000,000 note; (4) the $250,000 note; and (5) the $185,000 note.

On May 22, 1991, the Bank was declared insolvent and the FDIC was appointed as the Bank's receiver. The notes in question were sold to an acquiring bank, but then repurchased by the FDIC pursuant to a clause in the Purchase and Assumption Agreement authorizing the acquiring bank to "put" back to the FDIC any adversely classified loans.

In June 1991, Bathgate defaulted on the $2,000,000 note...

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