4 F.3d 1490 (9th Cir. 1993), 91-56300, Resolution Trust Corp. v. Midwest Federal Sav. Bank of Minot

Docket Nº:91-56300, 92-55350.
Citation:4 F.3d 1490
Party Name:RESOLUTION TRUST CORPORATION, in its capacity as Receiver of Midwest Federal Savings Bank of Minot; et al., Counter-Defendants/Appellants, v. MIDWEST FEDERAL SAVINGS BANK OF MINOT, a federally chartered savings association, as Trustee; Centennial Estates, Inc.; La Plata Investors; John F. Nolan; Gregory M. Beck; Gerald G. Wilson; TKMB Associates; J
Case Date:September 21, 1993
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 1490

4 F.3d 1490 (9th Cir. 1993)

RESOLUTION TRUST CORPORATION, in its capacity as Receiver of

Midwest Federal Savings Bank of Minot; et al.,




savings association, as Trustee; Centennial Estates, Inc.;

La Plata Investors; John F. Nolan; Gregory M. Beck;

Gerald G. Wilson; TKMB Associates; John S. Tighe; William

D. McBrearty; Michael J. Kiley, et al., Defendants,


Orangegate Investors, a California limited partnership,


RESOLUTION TRUST CORPORATION, in its capacity as Receiver of

Midwest Federal Savings Bank of Minot, Plaintiff-Appellee,



savings association, as Trustee, Defendant,


Orangegate Investors; Centennial Estates, Inc.; La Plata

Investors; John F. Nolan; Gregory M. Beck; TMKB

Associates; Gerald G. Wilson; Main St. Investors; Royce

T. Breazeale, Jr.; Michael J. Kiley, et al., Defendants-Appellants.

Nos. 91-56300, 92-55350.

United States Court of Appeals, Ninth Circuit

September 21, 1993

Argued and Submitted April 6, 1993.

Page 1491

J. Michael Schwartz, Popham, Haik, Schnobrich & Kaufman, Minneapolis, MN, for plaintiff-appellant.

Paul B. George, Stuart W. Price, McDermott, Will & Emery, Newport, Beach, CA and James H. Casello, Beck & Casello, Laguna Hills, CA, for defendants-appellees-counter-defendant-appellant.

Stephen C. Drummy and Lawrence M. Burek, Drummy King & White, Costa Mesa, CA, for defendants-appellants TMKB Associates and Michael J. Kiley.

Appeal from the United States District Court for the Central District of California.

Before: HALL, WIGGINS and TROTT, Circuit Judges.

Page 1492

TROTT, Circuit Judge:


This case involves two separate appeals. In No. 91-56300, the Resolution Trust Corporation, as receiver for Midwest Federal Savings Bank of Minot, appeals the district court's reformation of a loan agreement between Midwest Federal Savings Bank, the lender, and Orangegate Investors, a limited partnership, and several named individuals, collectively the borrowers. In No. 92-55350, the borrowers appeal the district court's denial of their requests for attorneys' fees. We have jurisdiction to hear these matters pursuant to 28 U.S.C. Sec. 1291 (1988), and we affirm the district court in both.



  1. History of the Loan

    In 1984, Orangegate Investors, a California limited partnership ("Orangegate"), purchased an office building in Garden Grove, California (the "Property"). By early 1985, Orangegate was required to refinance the original underlying loans on the Property as they had become due and payable by their own terms. Orangegate sought an $8 million permanent loan to refinance a $6.5 million debt on the Property.

    Orangegate entered into negotiations with Midwest Financial Services Mortgage Corp. ("MFS"), a wholly-owned subsidiary of Midwest Federal Savings Bank of Minot ("Midwest Bank") conducting business in California. Orangegate requested MFS provide nonrecourse financing in order to reap tax benefits for the limited partnership.

    On April 16, 1985, MFS issued a commitment letter to Orangegate ("Commitment Letter"). In this letter, MFS committed to "fund a permanent loan" on the Property in the amount of $8 million. The letter clearly provided for the loan to be "none [sic] recourse," but required additional security of $1 million in the form of a personal guaranty from John Joseph. The partners of Orangegate signed the Commitment Letter as directed and returned a signed copy to MFS along with a check for a $40,000 commitment fee. 1 The Commitment Letter was signed by Orangegate prior to its stated expiration date of May 31, 1985.

    On May 21, 1985, at a meeting held at the office of Midwest Bank in Minot, North Dakota, the Board of Directors of MFS approved the Orangegate loan as a "nonrecourse" loan. The loan form submitted to the board at the May 21 meeting reflects the loan's nonrecourse status. A record of this approval made in the minutes of the meeting clearly indicates the loan was approved as nonrecourse.

    By letter dated June 27, 1985, MFS informed Orangegate that MFS has approved the loan. This letter, however, failed to mention either the nonrecourse term or Joseph's personal guaranty. By letter dated July 1, 1985, MFS directed its outside attorney to draw up the loan papers for the Orangegate loan. In this letter, however, MFS failed to direct its attorney to include a nonrecourse term in the documents. MFS did direct the attorney to include additional documents to reflect other special provisions of the loan including Joseph's personal guaranty.

    In a letter to Orangegate dated July 2, 1985, MFS amended the June 27 approval letter by noting a correction in the monthly payment amount. MFS sent Orangegate a second approval letter on July 8, 1985, which was identical to the June 27 letter except for the change in the monthly payment amount called to Orangegate's attention in the July 2 letter. The loan documents prepared by MFS's attorney did not contain a nonrecourse provision, but did contain Joseph's

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    personal guaranty. Nevertheless, all the borrowers signed the documents. MFS made and funded the loan.

    At the time of making the loan, MFS was a subsidiary of Midwest Bank. However, on December 27, 1985, Midwest Bank acquired the loan from MFS. This purchase of the loan by Midwest Bank is noted in the bank's Board minutes from January 14, 1986. Likewise, in May, 1988, Windtree Mortgage Company ("Windtree") replaced MFS as the servicer of the loan.

    In 1989, Midwest Bank was placed into receivership by the United States Department of the Treasury Office of Thrift Supervision ("OTS"). Subsequently, OTS created a new entity to replace Midwest Bank ("new association"), and appointed the Resolution Trust Corporation ("RTC") as receiver for Midwest Bank and conservator for the new association. As conservator of the new association, 2 RTC acquired the final Orangegate loan documents, none of which contained a nonrecourse provision. Upon review of these loan documents, RTC determined Orangegate was in default under the terms of the loan, and the collateral, the Property, was worth approximately $3 million less than the balance of the loan. RTC's demand for cure and repayment was refused by Orangegate.

  2. Litigation

    Thereafter, on November 16, 1990, RTC filed suit against Orangegate, Joseph and others to foreclose upon the loan and collect on the personal guarantee. Defendants Kiley, Centennial Estates, Inc., John Joseph, and West Coast Realty Finance, and La Plata Investors, Nolan, Beck, Wilson, Main Street Investors, Breazeale, Tice, and Gardner (collectively "Answering Defendants") filed timely general answers to RTC's Complaint.

    On January 10, 1991, the Answering Defendants requested RTC turn over all bank documents concerning the loan. The Answering Defendants took the position that the loan was nonrecourse despite the lack of a nonrecourse provision in the final loan documents. Subsequently, RTC turned over two boxes of documents which purportedly were copies of Midwest Bank's records. However, the files actually were from Windtree, the loan servicer. The records from Windtree contained the only three documents involved in this case which mention the nonrecourse provision: the April 16 Commitment Letter, the MFS Board Submission form, and the minutes from the MFS's Board Meeting on May 21, 1985, at which the MFS Board had approved the Orangegate loan. Later, RTC produced actual bank records which did not contain any document that included the nonrecourse provision. RTC concedes, however, the Board Submission Form and a copy of the minutes from the MFS's May 21, 1985, Board meeting were found in the records of MFS.

    On February 4, 1991, Centennial, Joseph, and West Coast Realty Finance filed for summary judgment and sought a ruling that the loan was nonrecourse. The rest of the Answering Defendants joined in the summary judgment motion. In its order filed March 8, 1991, the district court rejected the Answering Defendants' interpretation of the loan documents. The district court held the Answering Defendants' attempt to include the nonrecourse provision into the final fully-integrated loan documents was barred not only by the parol evidence rule, but also by the D'Oench doctrine, D'Oench Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and 12 U.S.C. Sec. 1823(e). This doctrine places limits on the use to which "side deals" can be put to defeat obligations created in documents on file in a bank. Finding that a question may exist as to whether the common-law D'Oench doctrine itself would preclude the addition of the nonrecourse provision in the instant case, however, the district court concluded Sec. 1823(e), the D'Oench doctrine's statutory counterpart, surely precluded the term because the April 16 Commitment Letter was not approved by the board of the lending institution, Midwest Bank, but by the board of its wholly-owned subsidiary, MFS. The approval of the Commitment

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    Letter by the board of MFS, the court held, "falls short of the requirements of the statutory D'Oench doctrine."

    On March 5, 1991, defendant Orangegate, which had yet to file an answer to the original complaint, filed an answer and counterclaim. 3 The counterclaim sought reformation of the terms of the loan agreement to include a nonrecourse provision, and the counterclaim alleged a mutual mistake by the parties.

    On March 11, 1991, RTC filed its motion for summary judgment based on the court's March 8 order holding the loan to be recourse. At a hearing on April 8, 1991, the...

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